Rising costs dent profit for industrial tools maker Sandvik

Image: Sandvik AutoMine TH663i-038.

Metal-cutting tools and mining gear maker Sandvik on Friday reported a slightly smaller than expected quarterly profit rise, citing rising costs that it had not yet been able to pass on to customers.

The Swedish company said that higher second-quarter sales volumes and currency tailwinds were offset by cost inflation and higher air freight prices while growing inventories because of supply chain issues led to a drop in free cashflow.

Second-quarter operating profit adjusted for items affecting comparability grew 17% from a year earlier to 4.79 billion crowns ($453 million). The mean forecast in a Refinitiv poll of analysts had been for a profit of 4.92. billion.

Sales at the rival to Epiroc and Kennametal were up 25% before taking account of currency effects. Excluding acquisitions, such as that of Finish remote battery diagnostics platform Akkurate, sales were up 6%.

Like-for-like order intake was up 4% at 28.7 billion crowns. That was buoyed by a 9% increase for Sandvik’s mining equipment division, which accounts for about 40% of group turnover. In the first two weeks of July, group order intake was stable, it said.

“We continued to see solid demand in our businesses,” Chief Executive Stefan Widing said in a statement, though he warned of looming uncertainties in the face of “macroeconomic imbalances”.

Sandvik said the pausing of its operations in Russia in February and subsequent decision to make a full exit has had a negative effect on operations. Excluding Russia, order intake and revenue were both up 10%.

Sandvik in May announced measures to cut costs by 600 million crowns a year, including consolidation of production sites.

“Pricing has been on the top of our agenda, and we expect the measures we are taking to eventually fully mitigate the cost inflation,” Widing said on Friday.

One-off costs in the quarter totalled 1.1 billion crowns, relating mainly to Russia, which last year accounted for 3.5% of sales. It had no production in the country but had 900 employees in sales and services.

Shares in Sandvik were down 4% at 1125 GMT.

($1 = 10.5658 Swedish crowns)

(By Anna Ringstrom; Editing by Stine Jacobsen and David Goodman)

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